Mastering Project Portfolio Management

Mastering Project Portfolio Management A Systems Approach to Achieving Strategic Objectives Michael J. Bible, PMP Susan S. Bivins, PMP J.ROSS PUBLISHING

Contents Preface Acknowledgments About the Authors xi xv xvi Introduction to Project Portfolio Management 1 1.1 Acceptance of Project Management 2 1.2 Overview of PPM 2 1.3 PPM Model Overview 4 1.3.1 Strategic Phase Overview 5 1.3.2 Screening Phase Overview 6 1.3.3 Selection Phase Overview 7 1.3.4 Implementation Phase Overview 8 1.3.5 Evaluation Phase Overview 10 1.4 Iterative Nature of the PPM Process 10 1.5 Governance of the PPM Process 11 1.6 Organizational PPM Roles and Responsibilities 12 1.7 Executive (Strategic) Review Board 12 1.8 Portfolio Management Board 13 1.9 Portfolio Process Group '. 14 1.10 Portfolio Managers and Portfolio Management Team '. 14 1.11 Considerations for Implementing PPM...'. 15 1.12 Summary.'....-.' 16 1.13 References 17 Establishing the Foundation Through Strategic Planning 19 2.1 Overview of Strategic Planning 19 Role of Strategic Planning in the PPM Process 20 Organizational Mission and Values 21 2.1.1 Mission Statement Denning Organizational Purpose 21 2.1.2 Establishing Values and Ethics Defining Organizational Behavior 22 2.1.3 Vision Statement Setting Long-term Direction 23 2.1.4 Setting Goals Benchmarks for Achieving Success 24 Organizational Assessment 25 2.1.5 Establishing Objectives Defining Performance Outcomes 26 2.1.6 Strategic Plan Charting the Course 27 Environmental Protection Agency Strategic Plan Approach 27 Siemens AG Strategic Plan Approach 28 2.1.7 Strategic Planning and Project Portfolio Management 31 2.1.8 Completing the Strategic Phase 31 2.2 American Business University Background & Strategic Plan 32 2.2.1 ABU Mission 32

Mastering Project Portfolio Management 2.2.2 ABU Vision 32 2.2.3 ABU Goal 33 2.2.4 ABU Objectives 33 ABU Objectives and Sub-objectives 33 2.3 Summary 35 2.4 References : 35 Introduction to Ratio-scale Measurements and the Analytic Hierarchy Process 37 3.1 Decision Making with B.O.G.S.A.T. 38 3.2 The Importance of Hierarchies in Complex Problems 39 3.3 Comparison of Ways to Use Numbers 39 3.3.1 Nominal Scale 39 3.3.2 Ordinal Scale 39 3.3.3 Interval Scale 40 3.3.4 Ratio Scale 40 3.4 Compensatory and Non-compensatory Decision Making 41 3.5 Analytic Hierarchy Process 42 3.6 Pairwise Comparison 43 3.7 Overview of AHP in Project Portfolio Management 43 3.8 Introduction to Expert Choice Software Tools 44 3.8.1 Comparion Suite :. 44 3.8.2 Expert Choice Desktop 48 Numerical Mode 49 Verbal Mode 49 Graphical Mode 49 3.8.3 Periscope 51 3.9 Summary ; 52 3.10 References.;..-. 52 Prioritizing the Objectives Hierarchy Using Analytic Hierarchy Processes 53 4.1 PPM Role in Prioritizing Objectives 54 4.2 Prioritizing Objectives 54 4.3 Structuring the Objectives Hierarchy 55 4.4 Measuring by Conducting the Evaluation 55 4.4.1 Select Measurement Methods 56 4.4.2 Additional Pairwise Comparison Concepts 57 4.4.3 Preparing the Participants 57 4.5 Synthesizing to Derive Priorities for the Objectives 58 4.5.1 Local and Global Priorities in an Objectives Hierarchy 58 4.5.2 Ideal versus Distributive Mode 60 4.5.3 Consistency 60 4.6 Iterating as Necessary 60 4.7 Present Results and Maintain Governance of the Process 61 4.8 ABU Campus Revitalization Program Example 61 4.8.1 ABU Campus Revitalization Program Goals and Objectives 62 Identify Objectives and Sub-objectives 62 Determine the Level of Objectives To Be Evaluated 62 4.8.2 Prepare to Evaluate the Objectives Using AHP and Comparion 63 Login to Comparion and Create a New Project 63

Contents Basic Navigation in Comparion 66 Preliminary Project Management Information 66 4.8.3 Structure the Model 69 Structure the Model Entering the Goal and Objectives 69 Including Sub-objectives in the Objectives Hierarchy 71 Structure the Model Participants and Their Roles 72 4.8.4 Measure Establish the Evaluation Approach 76 Select Measurement Methods 76 1 Choosing the Participation Method 81 Check the Progress of the ABU Evaluation 83 Status When Objectives Evaluation Is Complete 84 4.8.5 Perform the Evaluation Collect Data and Prioritize Objectives 85' Collect Data 85 4.8.6 Synthesize the Results to Produce Relative Priorities 88 Ideal versus Distributive Mode 89 Consistency 90 Other Functions Available for the Synthesize Tab 90 4.8.7 Iterate 91 4.8.8 Reports 92 4.8.9 Review and Present for Approval 92 4.9 Prioritized Objectives A Major Step : 93 4.10 Summary 93 4.11 Appendix 4A Using Expert Choice Desktop to Create the Model 93 4.11.1 Building the Expert Choice Desktop Model 93 Open Expert Choice Desktop 93 Create the Expert Choice AHP Model 94 Entering the Facilitators Email Address 95 Saving the Model...: 96 Opening an Existing Expert Choice Model...-.? 97 Establish the Goal.'. 98 Establish the Objectives Hierarchy, 99 Including Sub-objectives in the Objectives Hierarchy 101 4.11.2 Complete the Model and Upload to Comparion 102 Local and Global Priorities 102 Selecting the Participants 104 Upload the Model to Comparion 104 4.12 Appendix 4B Synthesizing in Expert Choice Desktop 107 4.12.1 Combining and Synthesizing the Results 108 4.12.2 Ideal versus Distributive Mode 112 4.12.3 Consistency 112 4.13 References 114 Building the Pool of Potential Projects 115 5.1 Pre-screening Process 116 5.1.1 Pre-screening Roles and Responsibilities 117 5.1.2 Soliciting Project Proposals 117 5.1.3 Project Proposal Submission Methods 118 5.1.4 Receiving, Reviewing, and Evaluating Project Proposals 119 5.1.5 Identifying the Pool of Potential Projects 120

Mastering Project Portfolio Management 5.1.6 Obtaining Buy-in and Approval of Pre-screened Projects 121 5.2 Determining Feasibility 121 5.3 Other Considerations for Pre-screening 122 5.3.1 Organizational Risk Tolerance and Attitude 123 5.3.2 Senior Leadership Influence 124 5.3.3 Anticipated Portfolio Budget 124 5.3.4 Understanding the Organization's Capabilities and Resource Pool 125 5.3.5 Project Management Capabilities 125 5.3.6 Portfolio Management Capabilities 127 5.4 ABU Campus Revitalization Program Pre-screening 127 5.4.1 Pre-screening Process 127 5.4.2 Establishing Roles and Responsibilities (Governance) 128 Board of Trustees (Executive Review Board) 128 Steering Committee (Project Management Board) 128 University Facilities Office 129 5.4.3 Establishing the Program Management Office 129 5.4.4 Implementing a PPM System 129 5.4.5 Preparing to Pre-screen Project Proposals 130 5.4.6 Soliciting Project Proposals for the ABU Revitalization Program 130 5.4.7 Evaluating ABU Revitalization Program Project Proposals 131 5.4.8 Obtaining Pre-screening Alignment Matrix Approval 133 5.5 Summary 133 5.6 References 133 Determining Candidate Projects and Making the Case 135 6.1 Screening Process 135 6.1.1 Screening Activities 136 6.1.2 Screening Roles and Responsibilities ; 136 6.1.3 Screening Prerequisites v :.' 137 6.2 Business Cases 138 6.2.1 Developing Business Cases 138 6.2.2 Special Considerations for Cost Estimation 139 6.2.3 Business Case Elements for Existing Projects 140 6.3 Existing Projects 140 6.3.1 Inventory of Existing Projects 141 6.3.2 Organizational Change Management 141 6.4 Establishing Project Categories or Classifications 142 6.4.1 Common Categories of Projects 142 6.4.2 Strategic Buckets 143 6.5 Defining Screening Models for Project Categories 143 6.6 Potential Screening Model Criteria 144 6.6.1 Nonnumeric Criteria 144 Sacred Cow 145 Operating Necessity 145 Competitive Necessity 145 Product Line Extension 145 True Innovations 146 6.6.2 Numeric Criteria 146 Payback Period 147 Average Rate of Return 148

Contents Discounted Cash Flow 149 Benefit-Cost Ratio 150 Internal Rate of Return 150 Modified IRR 150 Profitability Index 151 NPV Advantages 152 6.6.3 Screening Model Considerations 152 6.7 Developing the List of Candidate Projects for ABU 153 6.7.1 ABU Campus Revitalization Program Project Categories 153 6.7.2 ABU Campus Revitalization Program Screening Model 154 6.8 ABU Candidate Projects 155 6.8.1 Evaluating ABU Campus Revitalization Project Business Cases 155 6.8.2 ABU Campus Revitalization Program Portfolio Candidates 155 6.9 Alternative Approaches to a Specific Project 156 6.10 Aligning Projects to Objectives the Alignment Matrix 157 6.11 Summary 159 6.12 Appendix 6A Sample High-level Business Cases 159 6.12.1 Renovate and Expand C. W. Benson Campus Library 159 Project Name 159 Screening Criteria Overview 159 Background 159 Project Rationale 160 Project Objectives and Goals 161 Anticipated Benefits 161 Project Alternatives 161 Project Work Breakdown Structure 161 Cost Estimates ; 161 Resource Estimates 162 Risks and Mitigation Strategies../.. 163 Constraints ': :.'. 163 Assumptions. 163 6.12.2 Sample Business Case for ABU Indoor Athletic Complex Project 163 Project Name 163 Screening Criteria Overview 163 Background 164 Project Rationale '. 165 Project Objectives and Goals 165 Anticipated Benefits 165 Project Alternatives 165 Deliverable Work Breakdown Structure 165 Cost Estimates 167 Resource Estimates 167 Risks and Mitigation Strategies 167 Constraints 168 Assumptions 168 6.13 Appendix 6B Choice Model Alternatives for Student Services Center 168 6.14 Appendix 6C AACE Estimate Classifications 172 6.15 References 173

Mastering Project Portfolio Management Prioritizing Candidate Projects 175 7.1 PPM Role in Prioritizing Alternatives 175 7.2 Prioritizing Candidate Projects Overview 176 7.3 Structure the Model 177 7.3.1 Adding Alternatives to the Model 177 7.3.2 Map Alternatives to Objectives to Establish Contribution 177 7.3.3 Specify Evaluators and Their Roles : 178 7.4 Measure by Conducting the Evaluation 179 7.4.1 Select Measurement Methods 179 Rating Scales 180 Step Functions and Utility Curves 180 7.4.2 Establish Measurement Options 181 7.4.3 Prepare the Participants 181 7.5 Synthesize to Derive Priorities for the Alternatives 181 7.5.1 Local and Global Priorities for Alternatives 181 7.5.2 Ideal versus Distributive Mode 182 7.5.3 Consistency 183 7.5.4 Sensitivity Analysis 184 7.6 Iterate as Necessary 184 7.7 Present Results and Maintain Governance of the Process 184 7.8 ABU Campus Revitalization Program Example 185 7.8.1 ABU Campus Revitalization Program Alignment Matrix 185 7.8.2 Prepare to Evaluate the Alternatives Using AHP and Comparion 185 7.8.3 Structure the Model 187 Add Alternatives 187 Add Descriptions for Alternatives 188 Map Alternatives to Objectives to Establish Contribution 191 Specify Evaluators and Their Roles 193 7.8.4 Measure Establish the Evaluation Approach.-.' 197 Select Measurement Methods!' 197 Establish Measurement Options 203 Asynchronous Anytime Evaluation 209 Synchronous TeamTime Evaluation 210 7.8.5 Perform the Evaluation Collect Data and Prioritize Candidate Projects 213 Collect and Synthesize Data 214 Collect Data.' 215 7.8.6 Synthesize the Results 216 Review the ABU Alternatives Evaluation Results 216 Ideal versus Distributive Mode 218 7.8.7 Perform Sensitivity Analysis of Synthesized Results 218 ABU Dynamic Sensitivity Analysis Example 219 ABU Performance Sensitivity Analysis Example 220 ABU Gradient Sensitivity Analysis Example 222 ABU 2D Analysis Example 223 7.8.8 The Need to Iterate 224 7.8.9 Review and Present Results and Next Steps 224 7.9 Prioritized Projects A Major Step 224 7.10 Summary 225 7.11 References 225

Contents 8 Considerations for Selecting the Initial Portfolio 227 8.1 Funding Levels 228 8.2 Selecting the Initial Project Portfolio 228 8.3 Efficient Frontier., 229 8.4 Constraint for the Initial Portfolio Groups 231 8.5 ABU Initial Portfolio Selection Example 232 8.5.1 ABU Initial Project Portfolios 232 8.5.2 Preparing the Model 232 8.5.3 Introduction to the Resource Aligner 234 8.5.4 Preparing for ABU Initial Portfolio Selection 240 ABU Groups for Projects with Multiple Alternatives 242 8.5.5 ABU Initial Portfolio Selection Scenarios 245 ABU $200M Portfolio Scenario 246 ABU $50M Portfolio Scenario 247 ABU Alternate Initial Portfolio Using Analysis of the Efficient Frontier 250 Comparing Selection by Optimization to Rank Order by Benefit Approach 252 8.5.6 ABU Initial Portfolio Conclusions and Recommendations 255 8.6 Summary 256 8.7 References 256 9 Additional Considerations for Selecting the Project Portfolio 257 9.1 Organizational Power and Political Environment 257 9.2 Balance and Coverage of Projects Across Objectives 259 9.3 Resource Limitations 260 9.4 Other Types of Constraints 261 9.4.1 Mandatory and Prohibited Projects 261 9.4.2 Project Dependencies and Enablers 261 9.4.3 Establishing Funding Pods 262 9.5 Accounting for Project Risk in Portfolio Selection../.. 262 9.5.1 Portfolio Risk :."..' 262 9.5.2 Project Risk...:. 263 9.6 Optimal Portfolio with Dependencies, Balance, Coverage, and Risk 263 9.7 Alternate Scenarios 264 9.8 ABU Optimal Project Portfolio Example 265 9.8.1 Project Dependencies and Mandatory Constraints 266 Must and Must Not Constraints 267 Project Dependencies 268 9.8.2 Critical Resource Constraints 270 9.8.3 Consideration of Balance and Coverage 272 9.8.4 Creating Charts Showing Costs versus Benefits 280 9.8.5 Consideration of Risk and Risk-Discounted or Expected Benefits 284 9.8.6 Approval to Proceed and Next Steps 296 9.9 Summary 296 9.10 References 297 10 Implementing and Governing the Project Portfolio 299 10.1 Portfolio Performance Reporting Structure 300 10.2 PPM Governance during Implementation 302 10.3 Evolving PPM Roles and Responsibilities 304

Mastering Project Portfolio Management 10.4 Types of Portfolio Performance Monitoring and Control 307 10.5 Foundation for Monitoring and Controlling the Portfolio 308 10.5.1 Project Portfolio Management Plan 308 10.5.2 Project Portfolio Management Information System 309 10.6 Iterative Nature of PPM 310 10.7 Responding to Strategic Change 311 10.8 Summary 311 10.9 References 312 11 Implementing and Evaluating Project and Portfolio Performance 313 11.1 Project Performance Indicators 314 11.2 Earned Value Management Measuring Cost and Schedule Performance 315 11.2.1 Schedule and Cost Performance Indices 317 11.2.2 Combining Cost and Schedule Performance 317 11.2.3 Estimated Costs to Complete 318 11.3 Quality Performance Index Measuring Conformance to Specifications 319 11.4 Measuring Project Performance 319 11.5 Measuring Portfolio Performance 322 11.6 Project Portfolio Performance Dashboard 324 11.7 Evaluating Performance and Determining Portfolio Corrective Action 327 11.8 Summary 329 11.9 References 330 Index 331